Laws of the People's Republic of China

INTERPRETATION OF SOME POLICY MATTERS BY THE
MINISTRY OF FINANCE REGARDING THE INTERIM
PROVISIONS FOR THE COLLECTION OF CONSOLIDATED
INDUSTRIAL AND COMMERCIAL TAX AND ENTERPRISES
INCOME TAX ON RESIDENT REPRESENTATIVE OFFICES
OF FOREIGN ENTERPRISES

(Issued on May 15, 1985)

 

SUBJECT: TAXATION

ISSUING-DEPT: MINISTRY OF FINANCE

ISSUE-DATE: 05/15/1985

IMPLEMENT-DATE: 05/15/1985

LENGTH: 1011 words

TEXT:

(1) The question regarding the scope of "resident representative offices of foreign enterprises"

The "resident representative offices of foreign enterprises" as stated in the Interim Provisions refer to resident representative offices of foreign enterprises and other economic organizations established in China, which are approved by relevant ministries, commissions, and bureaux under the State Council in accordance with the interim provisions for the control of resident representative offices of foreign enterprises laid down by the State Council and also registered with the administrative departments for industry and commerce.

The Interim Provisions also apply to resident representative offices of overseas Chinese, Hong Kong and Macao enterprises and other economic organizations.

(2) The question with regard to the scope of the "enterprises in China" as contained in Article 1 of the Interim provisions

The "enterprises in China", as is quoted in the sentence "resident representative offices undertake entrustment of the enterprises in China to handle agency business outside China" under Article 1 of the Interim Provisions, refer to state enterprises, collective enterprises and individual business persons of our country as well as the Chinese-foreign joint ventures, Chinese-foreign contractual joint ventures, and wholly foreign-owned enterprises established in China.

(3) The question with respect to the extent of the "agency business undertaken by resident representative offices of foreign enterprises entrusted by the enterprises in China"

"Resident representative offices undertaking entrustment of the enterprises in China to handle agency business outside China", as is mentioned in Article 1 of the Interim Provisions, refers only to agency business undertaken to promote sales outside China for the enterprises in China by resident representative offices of foreign enterprises.

(4) The question regarding how taxes shall be levied if a foreign enterprise has a number of resident representative offices scattered in China

In case a foreign enterprise has a number of resident representative offices scattered in China, each resident representative office shall file its own tax return to the local tax authority where it is located.

(5) The question concerning whether or not resident representative offices of foreign enterprises located within special economic zones are eligible for the preferential tax treatment of special economic zones

According to the Income Tax Law Concerning Foreign Enterprises and the Interim Provisions of the State Council for the Reduction and Exemption of Enterprise Income Tax and Consolidated Industry and Commerce Tax in Special Economic Zones and Fourteen Port Cities, resident representative offices of foreign enterprises located in special economic zones shall be regarded as foreign enterprises.  Therefore, they are eligible for a preferential income-tax-reduction rate of 15%.

(6) The question as to how taxes shall be levied since some resident representative offices settle accounts of their income in China and some, outside China

The income generated by resident representative offices of foreign enterprises in China by conducting such business as intermediary, etc. is the income originated in China.  Consequently, no matter whether the payment is settled in China or outside China, whether the income is paid to resident representative offices or to the head office, it must be declared to the tax authorities for tax payment pursuant to the Interim Provisions.

(7) The question concerning how to levy taxes on income from commission, rebate and service charge

With respect to income out of commission and service charge on rebate resulted from such business as intermediary, etc. by resident representative offices of foreign enterprises in China, be it from one party or from many parties, all the income must be jointly assessed and be subject to taxation.

With regard to income on rebate yielded by resident representative offices of foreign enterprises in China in their intermediary and other business, no matter whether the income on rebate is withdrawn from within or from outside the price, it must be subject to taxation according to interim provisions.

(8) The question regarding applicable rates of consolidated industrial and commercial tax to be levied on the income generated by resident representative offices, as is stated in Article 4 of the Interim provisions

A reduced rate of 5% of consolidated industrial and commercial tax shall be levied on the income from commission, rebate and service charge, etc. yielded by resident representative offices of foreign enterprises, should the items to be taxed fall under the tax rate classification schedules of consolidated industrial and commercial tax.  A 5% rate may also be levied on items which are not explicitly listed in the tax rate classification schedules.

(9) The question concerning the implementation date of the Interim Provisions

The collection of consolidated industrial and commercial tax on resident representative offices of foreign enterprises shall start on June 1, 1985.  While the collection of enterprise income tax shall be retroactive from the tax year of 1985.

(10) The question as to whether taxes shall be levied pursuant to the interim provisions on the income earned by unapproved and unregistered foreign enterprises, other economic organizations and individuals engaged in business activities such as intermediary, etc.

Foreign enterprises, other economic organizations and individuals unapproved by and unregistered with administrative departments for industry and commerce are prohibited from conducting business activities such as intermediary and consulting, etc. in China.  However, taxes shall still be levied, in accordance with the Interim Provisions, on the income from commission, rebate and service charge, etc. yielded by those mentioned above so that they will not evade taxation although they have ignored the registration rules.